Tech Startups Take on Pentagon Contract System

Competing in a system that was designed with giant companies in mind, tiny tech shops are jumping through hoops in hopes of landing lucrative defense contracts.

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(TNS) -- Hub startups are raking in lucrative defense contracts — but are also grappling with the myriad security, accounting and compliance hurdles the Pentagon sets up for its vendors.

“The Defense Contract Audit Agency has to come in and vet your entire financial system and see that you have an accounting system that identifies transactions appropriately, that you have timesheets that you’re accounting for every hour you’re billing to the government,” said Sarah Haig, chief operating officer of Silverside Detectors. “(It’s) a level of administrative infrastructure that a startup would never, ever, put in place.”

The Pentagon’s contract system was designed with giants in mind, not the tiny, entrepreneurial tech shops of the 21st century. Silverside only had two employees — Haig and her co-founder — when they first applied last year for a contract from DARPA to develop their system of cheaper nuclear bomb detectors.

Very early on, the company put a system in place that tracked how every hour was spent, almost unheard of for such a small startup. The company now has nine employees, but Haig is still a one-woman HR and compliance department while running the company — a stark contrast to defense contracting giants such as Raytheon, which have hundreds of employees dedicated to government compliance.

A spokesman for DARPA said there was no one available to provide a comment. The Department of Defense did not respond to requests for comment.

Other companies must take even more extreme steps. Accion Systems, which is developing a new kind of propulsion system for small satellites, works out of Greentown Labs, a Somerville co-working space. Their contract requires the company to take steps to prevent any foreign national from obtaining their technology, so Accion’s portion of Greentown’s extensive open manufacturing floor is under lock, key and black curtains.

“There’s a joke among government contractors that grants pay half for the work and half for compliance with all the crazy government regulations,” said Natalya Brickner, chief executive of Accion.

Chris Lynch, a venture capitalist with FKA in Cambridge, said he tells the companies he invests in to wait before applying for a government contract, because compliance requires too much time and money.

“I tell them to do (federal contracting) last, because of the timeframe, because of the expense,” Lynch said. “Small companies miss out on the opportunity to sell to the government, which is a lucrative one once you get through all those hoops.”

Ultimately, companies such as Silverside and Accion take these extra steps because it’s worth it.

“We’re getting a whole lot of money, and we’re not getting diluted. We’re retaining control of the company,” Haig said. “We’re trying to figure out how to not get broken and yet also take advantage of some of the best funding that’s coming down the pipeline for us.”

©2015 the Boston Herald, Distributed by Tribune Content Agency, LLC.


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